Steve Wright

NexThought Monday – When it Comes to Social Enterprise, It’s Time to Take Ourselves Seriously

Social enterprise is mature. By that I mean social enterprises have demonstrated they can sustainably provide unique value to their customers. Market infrastructure has enabled this value to be provided sustainably; i.e. it can be provided continuously over time. However, while mature, social enterprise is not yet successful because success entails solving the world’s most intractable problems. In this post I will try to pull together several threads and suggest a way to increase the likelihood of success for social enterprise and, in turn, success for humanity. (Because that’s why we are doing this work, right?)

Before I get into the details, please indulge me for just a few paragraphs. I would like to refer to three other articles that provide background for what I will say in this one. The first is one that I wrote where I claim that social enterprise is a disruptive innovation. Social enterprises are required, by definition, to produce products and services that are designed to solve a problem. Social enterprises prioritize value to the customer over profit to the enterprise. The impact of a social enterprise is the aggregate value delivered to customers by products. Impact is product. By obeying the laws of supply and demand, social enterprises innovate to deliver this value sustainably. Put simply, where success in a financial enterprise is defined as the ability to make a profit, in a social enterprise success is defined as the ability to create impact.

If this is true then understanding impact and how to maximize impact should be the domain of business management or operations. This is the focus of the post Metrics 3.0: A New Vision for Shared Metrics. If impact is product then business operations and product design are critical not just to the ability to keep the lights on but also to effectively deliver impact. “Metrics 3.0” does a great job of breaking out the difference between measurement and evaluation at both the organization level and the ecosystem level while maintaining the focus on operational excellence and industrywide collaboration.

Which brings us to the third and simplest article – The Tactics of Collaboration – where the takeaway is straightforward: The problems that we are working on can’t be solved by any one organization. It is essential that we collaborate and collaboration requires vulnerability. Engaging fully in a collaborative effort requires organizations to accept risk relative to their individual success. Organizations, not individuals, must accept this risk to increase the likelihood of collaborative success, defined as creating solutions to the world’s most intractable problems. For example, microfinance institutions like Grameen Bank, BRAC, Ujjivan, MiBanco and others have demonstrated that selling small loans to poor people can provide sustaining revenue. However, we have also seen that loans alone are not enough to alleviate poverty. The addition of components like cash transfers, livelihood support, micro-savings and services in health and education are also necessary to help the poor graduate out of poverty.

What these three articles boil down to is this. Taking social enterprise seriously will require us to:

  1. Prioritize value to the customer
  2. Design for and manage impact
  3. Collaborate to build sustainable, effective and scaled solutions

Implementing these three will require us to deconstruct our assumptions about business success, and to start from scratch and build clear and rigorous understanding of the process from innovation through business execution to appropriate scale. It is also critical to recognize that strategy will necessarily be different for every problem we work to solve. Because impact is product, just as the strategy necessary to design, manufacture and sell tennis shoes is different from the strategy necessary to sell software; so it is the case that maximizing the impact of rural prenatal health care is different from maximizing the impact of financial services to the poor.

Getting from Here to There

For the remainder of this post I will take look at one specific social enterprise domain – microfinance or financial services for the poor. I worked at the Grameen Foundation for almost four years ending last May. While I was there I managed both the Progress out of Poverty Index (PPI) and TaroWorks. The PPI is a simple, 10-question survey for measuring household level poverty and TaroWorks is technology that helps social enterprises in the developing world to manage a field force of employees as well as the data these employees collect as part of their work. Both of these products are used as social performance management tools by social enterprises interested in alleviating poverty.

“Social performance management (SPM) is the process of managing an organization to achieve a social mission. It is a management style that puts customers at the center of all strategic and operational decisions. SPM begins with a clear social strategy, which is then carried out by the board, management and employees.”

Microfinance Gateway

During my time with Grameen I became steeped in the SPM world. I remember a meeting of the Social Performance Task Force that took place in the Netherlands. I was still new to microfinance and was surprised to learn that not all microfinance institutions (MFIs) were willing to claim a vision of poverty alleviation. For these MFIs, their business is to profitably provide financial services to the poor. However, it seems to me that if an MFI is not focused on poverty alleviation, then the fact that their customers are poor is only important as a demographic and not as a problem to be solved. Because of this, these MFIs run the risk of maintaining (or even increasing) their customers’ poverty. A cynical interpretation is that “success” for an MFI that does not intend poverty alleviation is maintaining a customer base that is sustainably poor. It is my belief that we must understand poverty as a market failure and not an opportunity for profit.

The critical point here is that the intention to serve the poor is an essential aspect of a good MFI and that intention is made real by ensuring that you are providing quality products and quality products are created through rigorous social performance management because rigorous social performance management IS “a management style that puts customers at the center of all strategic and operational decisions.” The impact realized by the customer of an MFI is an improved quality of life as a result of being less poor. Again, I am using microfinance as an illustrative example of all social enterprise.

This logic applies to social enterprises in agriculture, health, education, energy, etc. The domain and context of the market failure matters because they define the problem to be solved and solving the problem is the purpose of the product that is designed and sold by the social enterprise.

In microfinance there are several initiatives focused on social performance management. While there are efforts to build greater clarity and cohesion between these initiatives, MFIs commonly complain that it is too convoluted and expensive to understand and implement the best practices. There are at least three initiatives focused on creating standards: standards for client protection (SMART Campaign), universal standards intended to set a baseline for responsible microfinance (Social Performance Task Force) and aspirational standards that can be used to assess the best at implementing pro-poor principles (TrueLift). There are at least four distinct poverty measurement efforts: the PPI, USAID’s Poverty Assessment Tool, the World Bank’s whatever-they-are-doing-now tool and Oxford’s Multidimensional Poverty Index. There are several open and aggregate data projects: the Mix Market, the World Bank and IRIS are examples of this. Add to this the many, many, many research, rating, consulting and other nonprofit agencies focused on increasing the efficacy of microfinance and international development in general and what I see is a massively disjointed effort.

And here is the punchline of this post. It is entirely possible that all of the ideas that we need to end global poverty are in place; however, we have so enthusiastically embraced the financial market metaphor that even the initiatives that must cooperate to succeed can’t do so fully because they are required to compete. There is an old and tired story to be inserted here about the balkanizing influence of competing for funding but instead of focusing on that, I would like to suggest a solution.

We need the combination of a trade association and core research facility; we need a global poverty-focused version of a combination between the Buck Institute for Research on Aging and the AARP. The goal would be to provide services to the organizations that are designing, testing and implementing best practices, to serve as a focal point for research and innovation and to advocate for the dissemination of proven solutions. Poverty measurement tools could be catalogued and implementation services made available. These tools could even be merged and/or managed in this new entity to eliminate redundant overhead and focus on efficacy. Standards and best practices could be iteratively tested and updated. Synergies found and exploited. And, as with the poverty measurement tools, the organizations that build and maintain these standards could merge under one roof. Virtual libraries could be built. Broadly representative user groups managed. Design labs and research institutes could establish intramural agreements. Data collected and analyzed. Solutions discovered.

As social enterprises, collaboration is our competitive advantage. Competition will always have its place in our work but it must always be in service of greater efficacy against a larger goal – a goal beyond the reach of any one social enterprise – goals like an end to poverty, universal education and increased capacity for love. We have made significant progress over the past few decades. In many cases, we know what works or at least know in what direction to move. Let’s improve our ability to work well together. Focusing specifically on the infrastructure and technical assistance, let’s address the wasteful redundancy and eliminate the unnecessary and ineffective competition so that we can move forward together.

Steve Wright lives in Oakland, CA and has been working in the social sector for 25 years. He was previously a vice president at the Grameen Foundation, where he focused on incubating two social enterprises focused alleviating poverty: TaroWorks and the Progress out of Poverty Index.

Impact Assessment
impact investing, social enterprise